BocaBum99
TUG Member
I posted this in a thread on Timeshare Forums entitled "Why is there no resale market?"
This view of the market supports my advocacy of laws requiring Timeshare HOAs to take deed backs and automatic termination of timeshare plans after a set period of time (like 25 or 30 years) unless voted by a super majority of owners to keep it as is.
The corollary of this idea is that service providers who liquidate timeshares for a fee provide a valuable service in creating liquidity in the timeshare resale market. Without them, more owners would be stuck in timeshares that should be taken back by the resorts for a fee.
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Why is there no resale market?
It is very simple economics.
Price is determined by the point at which the supply and demand curves for resale timeshares intersect.
There is a significant increase in supply due to:
1) a dramatically greater number of existing owners due to sales made between 2004 and 2008, a percentage of which always want to sell in any economic environment.
2) a greater number of owners who must sell due to one of many financial issues facing their families like the lack of a job.
3) a greater number of owners who are defaulting because they should have never qualified for a timeshare loan in the first place.
4) a large number of timeshare resorts that should self terminate, but, for one reason or another, cannot.
5) the proliferation of vendors who take a fee for liquidating timeshares. They are advertising everywhere.
There is a significant decrease in demand due to:
1) significantly reduced discretionary budgets of consumers
2) current owners who loaded up on cheap timeshares over the past 3 years cannot take advantage of additional timeshares at any cost.
3) the slow increase in educated buyers who are the market for timeshare resales.
4) rising maintenance fees making the rental market and own vs rent market less attractive.
The only way to create a situation where a market clearing price is higher than $0 is for both supply to decrease dramatically AND for demand to increase dramatically. That can happen if maintenance fees are significantly below the rate at which a resort will rent. That will create and sustain an investor market of people who will purchase timeshare units for profit.
Also, supply must be taken out by developers who will do so if and when credit markets ever return to a reasonable level. When that happens, they will start taking back free resale inventory to sell at retail.
Supply can also be taken out if resorts are allowed to terminate their timeshare plans. Selling off the land for an alternate use would net owners a lot of cash and put a price floor on timeshares.
Given the above, the requirement to solve the liquidity issue for the timeshare resale market is as follows:
Make a law in every state that requires a timeshare HOA to take deedbacks for all timeshare units for a transfer fee and 1 or 2 years maintenance fees. This will force the resort to do one of the following:
a) keep the maintenance fees low enough so that units can rent at a profit so owners will take over those units for a price higher than zero.
b) be so burdened with uncollectable fees that it must raise the annual fees to a threshold where owners vote to terminate the timeshare plan.
When the above happens, investors will buy up timeshares for potential capital gain when the timeshare resort is sold off and proceeds are distributed to all owners. Or, those same investors buy up property because there is a positive return on invested capital higher than the risk adjusted return for a timeshare rental.
All of the above will result in price floors that are higher than zero for resorts that remain.
This view of the market supports my advocacy of laws requiring Timeshare HOAs to take deed backs and automatic termination of timeshare plans after a set period of time (like 25 or 30 years) unless voted by a super majority of owners to keep it as is.
The corollary of this idea is that service providers who liquidate timeshares for a fee provide a valuable service in creating liquidity in the timeshare resale market. Without them, more owners would be stuck in timeshares that should be taken back by the resorts for a fee.
========================
Why is there no resale market?
It is very simple economics.
Price is determined by the point at which the supply and demand curves for resale timeshares intersect.
There is a significant increase in supply due to:
1) a dramatically greater number of existing owners due to sales made between 2004 and 2008, a percentage of which always want to sell in any economic environment.
2) a greater number of owners who must sell due to one of many financial issues facing their families like the lack of a job.
3) a greater number of owners who are defaulting because they should have never qualified for a timeshare loan in the first place.
4) a large number of timeshare resorts that should self terminate, but, for one reason or another, cannot.
5) the proliferation of vendors who take a fee for liquidating timeshares. They are advertising everywhere.
There is a significant decrease in demand due to:
1) significantly reduced discretionary budgets of consumers
2) current owners who loaded up on cheap timeshares over the past 3 years cannot take advantage of additional timeshares at any cost.
3) the slow increase in educated buyers who are the market for timeshare resales.
4) rising maintenance fees making the rental market and own vs rent market less attractive.
The only way to create a situation where a market clearing price is higher than $0 is for both supply to decrease dramatically AND for demand to increase dramatically. That can happen if maintenance fees are significantly below the rate at which a resort will rent. That will create and sustain an investor market of people who will purchase timeshare units for profit.
Also, supply must be taken out by developers who will do so if and when credit markets ever return to a reasonable level. When that happens, they will start taking back free resale inventory to sell at retail.
Supply can also be taken out if resorts are allowed to terminate their timeshare plans. Selling off the land for an alternate use would net owners a lot of cash and put a price floor on timeshares.
Given the above, the requirement to solve the liquidity issue for the timeshare resale market is as follows:
Make a law in every state that requires a timeshare HOA to take deedbacks for all timeshare units for a transfer fee and 1 or 2 years maintenance fees. This will force the resort to do one of the following:
a) keep the maintenance fees low enough so that units can rent at a profit so owners will take over those units for a price higher than zero.
b) be so burdened with uncollectable fees that it must raise the annual fees to a threshold where owners vote to terminate the timeshare plan.
When the above happens, investors will buy up timeshares for potential capital gain when the timeshare resort is sold off and proceeds are distributed to all owners. Or, those same investors buy up property because there is a positive return on invested capital higher than the risk adjusted return for a timeshare rental.
All of the above will result in price floors that are higher than zero for resorts that remain.